KBB: Buyers More Attracted to 0% Financing Over Other Incentives

IRVINE, Calif. -- Thirty-seven percent of today's in-market vehicle buyers said they see zero-percent financing as the most appealing incentive available, up 11 percent from last year, according to Kelley Blue Book's New-Vehicle Buyer Attitude Study on Vehicle Purchasing and Pricing released today.

The study also discovered that employee-pricing programs, which were made popular by the domestics last year, are the least appealing to consumers now, with only 10 percent of those questioned referring to this incentive as "most attractive."

The fact that consumers find zero-percent financing program so attractive could work out well for the domestics this year, as both Chrysler and Ford recently discussed their incentive initiatives with SubPrime Auto Finance News.

Chrysler is now offering zero-percent financing for consumers who have slightly less than top prime credit, but still fall into the A category, a spokesman recently told SubPrime Auto Finance News. The special incentive includes several high volume 2006 models, including minivans, Dodge Durangos and Jeep Commanders.

"We're opening the door to a larger group of people who have strong credit, but not perfect credit," said Kevin McCormick, a Chrysler spokesman.

Chrysler's zero-percent financing started Sept. 1 and will run through Oct. 2. Part of the reasoning behind the incentive is to clear out 2006 models to make room for 2007 vehicles, according to McCormick.

Additionally, McCormick explained, "This is also just to respond to the marketplace in the sense that interest rates are creeping up to higher status and we felt like this could really positively impact consumers' budgets. This offers a monthly price point that really works for us and the consumers."

Chrysler is following in Ford's footsteps, as the Dearborn-based automaker recently rolled out a similar incentive program called the Labor Day Sales Event, which featured zero-percent financing even for consumers with subprime credit ratings, several Ford spokeswomen confirmed recently.

"Last year, all three American manufacturers participated-in and heavily promoted their employee-pricing programs, making last August one of the best sales months ever in the U.S.," said Jack Nerad, executive editorial director and executive market analyst for Kelley Blue Book.

"This year, General Motors' lack of participation in the employee-pricing wars and the less prominent promotion of the programs by Ford and Chrysler did not spur car-buyers into the market or make them feel compelled to buy the way they did the previous summer," he continued.

Kelley Blue Book also found that more and more consumers are reporting that they prefer a single set price rather than negotiating with a dealer. The percentage of consumers preferring to negotiate continues to decline, according to executives. Further broken down, Kelley Blue Book discovered that men and younger shoppers are more likely to prefer negotiating the final purchase price over other subgroups.

"Older shoppers often have more discretionary income and know exactly how much they can spend when buying a new car," said Nerad. "It's more about, ‘What my time is worth,' than negotiating that last $50 or $100."

Although consumers do prefer a set price, Kelley Blue Book Marketing Research reported that consumers aren't referring to the MSRP or sticker price. Seventy-three percent of shoppers "somewhat" or "strongly" disagree that paying the MSRP or sticker price for a new car is fair.

Interestingly enough, gender can prove to be a differentiator. Fifty-nine percent of men and 79 percent of women "somewhat" or "strongly" disagree that paying sticker price is fair, according to Kelley Blue Book research.

Executives said the survey was administered via the Internet on kbb.com from Aug. 29 to Sept. 6, among nearly 500 in-market new-vehicle shoppers planning to purchase or lease a new vehicle in the next year. This is the third wave of the annual study.

For the complete results, or more information on Kelley Blue Book's studies, Kelly Gim, account manager of marketing research services, at (949) 268-2756.